Characteristics
Of Money
Store of Value
Directions: Answer all questions completely?
1) Explain the difference between Representative money and Fiat money.
2) What is Currency?
3) Using the chart, what are the three functions of money?
Characteristics of Money
The first forms of money were very simple. In other countries, tobacco, wooden coins, and receipts
from cotton warehouses were used for money. These early forms of money lacked the flexibility
and widespread acceptability of current money. In order for something to be used for money, it
must meet the following characteristics:
• Durability. Money should be able to stand up under constant use.
• Portability. Money needs to be small enough so it can be conveniently carried in clothes,
pockets, or purses.
• Divisibility. Money must be made in various units. You should be able to make change. By
having various units of money, goods of various value can be paid for, and change for larger units of
money can be made. Barter, on the other hand, requires goods that are traded to be of equal value.
• Uniformity. Every bill and coin of the same value needs to look the same. Money must be
uniform in that one $20.00 bill and another $20.00 bill must be able to buy the same thing.
• Acceptable. Money needs to be easily recognizable. Everyone knows what a dollar bill, a ten
dollar bill, or a quarter looks like. We should also be able to recognize genuine money from
counterfeit.
• Relative Scarcity. Money needs to be hard to manufacture. If it were possible to manufacture
money as easily as any other good, we would be flooded with counterfeit currency. Our money is a
hard-to manufacture special paper and metal coins that have proven to be very difficult to
duplicate. Money also could not be common substances like sand or clam shells that anyone could
pick up on a beach. Money must be made of scarce or difficult-to-make goods.
Types of Money and Supply
One of the earliest uses of precious (scarce) metals such as gold and silver was for money. Gold
and silver coins meet all of the six characteristics above. Money made from gold or silver coins is
called species or hard money. In an economy as large as that of the United States, we do not have
enough gold or silver to use as money. We use paper money instead of species. The acceptance
of paper money by people is based on the government’s willingness to accept it to pay taxes and
the willingness of business people to accept it as payment for goods.
At one time our nation’s money supply could not have been greater than the dollar value of its
gold reserves. Our country could have found itself producing more goods and services than there
was money to purchase them. Unless we had discovered vast new gold or silver mining areas we
would not have had a very large supply of currency in the United States. America gave up the gold
standard, or backing its currency in gold, in the 1930s. The government’s solution was to back our
currency with the dollar value of the nation’s total production of goods and services each year. This
figure is called the gross domestic product (GDP). The government now issues currency equal to
the GDP, or the amount of goods and services produced in the United States in one year.
4) Describe four characteristics of money.
5) Why don’t we use only gold and silver for our currency?
6) How do we value our money today?
CHARACTERISTICS OF MONEY
Directions: Read each of the following phrases below, than tell which
Characteristics they falls under.
7) "A penny saved is a penny earned" - George Herbert's
8) "Don't let the money burn a hole in your pocket" - Author unknown
9) " A fool and his money are soon parted" - Thomas Tusser
10) "He who buys what he does not need steals from himself" - Author unknown
11) “Filthy Rich" - William Tindale
12) "The Safe way to double your money is to fold it over once and put it in your
pocket" - Frank Hubbard
Directions: Some characteristics of money are listed down the left-hand column in the table below.
Listed across the top are different items that have been used as money in the past. Rate each item
on a scale of 1 to 3 for each characteristic. A rating of 1 means the item performs that function
poorly, and a rating of 3 means the item performs that function very well.